Essays In Spatial Econometrics

Spatial econometrics is a subfield of econometrics that deals with the treatment of spatialinteractions in regression models for cross sectional and panel data.Chapter 1: This is the first paper that highlights the role of spatial interactions, in thecontext of bankruptcy laws, in the entrepreneurship decision. This chapter is in two parts:one of which relates to the birth, and the other to the death, of businesses. The focus ofthe paper is on small businesses in the US. Small firms represent more than 90% of allenterprises and play a large role in entry and exit in the US. Further, the US hastraditionally had pro-debtor bankruptcy laws. Hence this paper asks whether laws thatfacilitate easy exit, such as bankruptcy laws, are an important consideration in entry (andexit) of small businesses. This paper studies the decision of an entrepreneur to begin (orend) a business in a particular state, as a function of bankruptcy regulations and otherbusiness variables in that state as well as those in neighboring states. The study useslongitudinal household level data from the SIPP (Census) dataset. I estimate a randomeffects probit model with a lagged endogenous variable. The paper finds that higherbankruptcy exemptions in neighboring states lower the probability of starting a businessin the state of residence. The bankruptcy exemption in one's own state has a significantand positive impact on entrepreneurship.Chapter II: This paper is a first attempt to empirically model determinants of FDI flowsto emerging market economies, using a spatial approach. The paper uses data on FDIinflows to 29 emerging market and developing economies for the period 1980-2000.Apart from various country characteristics, we include a corruption perception index andan index of labor productivity as determinants of these flows. The unique contribution ofthis paper is to include a weighted average of these conditions in "neighbor countries"amongst factors that may explain FDI flows into a country. Results indicate thatcorruption perception and labor productivity, in both host and neighbor countries,significantly determine FDI inflows to a host country.